Time: Start from 13:30, June 3, 2014 (Tuesday)

Venue: Room 302, Starr Building

Moderator: Associate Prof. Haina SHI

Speaker: Zheng WANG  (City University of Hong Kong) 

Title: Customers’ Income Smoothing and Suppliers’ Bank Loan Contracting 

Abstract: This study examines whether and how customers’ income smoothing affects suppliers’ bank loan contracting. We find that (1) borrowers whose customers smooth earnings tend to have more favorable loan terms, including lower loan rates, lower likelihood of having collateral requirements, and fewer restrictive covenants; and (2) the above associations between customers’ income smoothing and suppliers’ loan contracting terms are more pronounced when the customer firms have lower managerial equity incentive, are in more concentrated industry, have longer relationship with the supplier and have relatively smaller size. Our findings first provide supporting evidence on the informational role of income smoothing in helping creditors/investors better predict firms’ real financial performance/underlying cash flows. Second, our findings show that income smoothing has economic consequence in the private debt market that extends beyond the firm to its supply chain partners.